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A comparison of the HS Market Neutral Index and the S&P 500 Index’s performance stats for the year ending September 15, 2011, illustrates the strategy’s reduced volatility profile:

HS Market Neutral Index

S&P 500 Index

Average month

0.24%

1.33%

Best month

2.22%

8.76%

Worst month

-1.34%

-5.68%

1-Year total return

1.70%

9.62%

Annualized standard deviation

3.73%

19.17%

Sharpe ratio

0.42

0.40

Source: Credit Suisse

The monthly-return correlations between the HS Market Neutral Index and major indexes over the year ending September 15, 2011 were low, which supports the diversification claim:

Barclays Capital U.S. Aggregate Index

MSCI Total Return EAFE® Index

S&P 500 Index

TOPIX Index

-0.141

0.362

0.306

0.177

According to Credit Suisse’s fact sheet, the index reflects the difference in return between two equally weighted constituent sub-indices, the Long Total Return Index (the “long index”) and the Short Total Return Index (the “short index”).

Each sub-index contains approximately 75 component stocks (the “index components”), which are selected from a universe of 750 stocks consisting of the top 275 North American stocks by market capitalization, the top 300 European stocks by market capitalization and liquidity and the top 175 Japanese stocks by market capitalization as identified from the HOLT database, which currently includes roughly 20,000 stocks.

The stocks are then grouped into 10 sectors and ranked using the HOLT stock selection framework.

The long index is constructed by selecting stocks of companies with a proportion rank of less than or equal to 10% of each sector and with a proportion rank of less than or equal to 34% within each region and sector.

The short index is constructed by pairing the selected longs with the lowest ranked stocks in the same sector and region to ensure market neutrality. Holdings are rebalanced quarterly.

For clients who invest in alternatives, CSMN can fit nicely within their alternatives portfolio, according to Greg King, CFA, and Head of Exchange Traded Products with Credit Suisse.

Although Credit Suisse offers other alternative-investment ETNs, including a merger arbitrage and a long-short product, CSMN is the firm’s first pure market-neutral strategy and offers ETN-access to the strategy and its diversification benefits for an annual management fee of 1.05%. (See the CSMN prospectus online for more details).

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